MA Windfall Payments: A Source of Help for Low-Income Children And Seniors? Presentation to the TriCaucus Ron Pollack Families USA May 11, 2007

Medicare Advantage Plans How much do seniors from communities of color rely on MA plans?

A Lot, According to Widely Quoted Study Professors Atherly and Thorpe say past research showed: 40% of African Americans and 52.9% of Hispanic beneficiaries enroll in these [MA] plans... 36% of Medicare eligible beneficiaries with incomes below $10, enrolled in these private plans without Medicaid or employer coverage without Medicaid or employer coverage

BUT... Study Excludes Half of Minority and Low-Income Seniors Those with Medicaid or employer coverage were left out. How many is that? 45% of Hispanic seniors 54% of African-American seniors 56% of all Medicare beneficiaries with incomes < $10,000 Source: AHIP 2007

Traditional Medicare: Still the Choice of Seniors MA Traditional Medicare Hispanic seniors 25% 75% Asian seniors 14% 86% African-American seniors 13% 87% Low-income seniors 10% 90% Source: AHIP X 6X 8X 9X

Whose Advantage? Windfall Payments = Added cost per person, compared to traditional Medicare MedPAC estimates average windfall payments for all MA plans are 12% For fast growing private FFS plans, average windfall payments are 19% CBO: Excess payment over 5 years ( ) $54 billion CBO: Excess payment over 10 years ( ) $149.1 billion

Do Windfall Payments = Extra Benefits? Some portion goes to enhance benefits and reduce beneficiaries out-of-pocket costs BUT Minimal regulation No oversight No limits on profiteering

Where Does the Windfall Go? At UnitedHealth, Goldman Sachs estimates Medicare Advantage will account this year for 11 percent of net income. Goldman Sachs estimates that Humana, a leader in the field, will earn 66 percent of its net income from Medicare Advantage this year. Michael B. McCallister, President and CEO of Humana, July 31, 2006: Stronger results in our Medicare Advantage, commercial, and TRICARE businesses combined to produce second-quarter earnings that significantly surpassed our expectations. Were on track to grow revenues by 50 percent this year... and expand our Medicare business into a long-term growth engine. Source: Wall Street Journal, April 30, 2007 and Humana 2006.

What Do Overpayments Mean for Medicare? Increase premiums for people in traditional Medicare. Threaten Medicares financing, encouraging program cutbacks. Hasten insolvency of Part A (inpatient) trust fund by 2 years. Increased annual premiums by $24 this year. Will have increasing impact on premiums each year. Source: Richard Foster, CMS 2007

Bush Administration and Republican Congressional Leaders Why so intent on protecting windfall overpayments? Two words... P R I V A T I Z E Medicare

The Conservative Game Plan Privatize Social Security – failed (so far) Privatize Medicare Part D – succeeded: only private plans allowed to run Part D Medicare prohibited from bargaining for better drug prices Privatize traditional Medicare – outcome unclear

Think Were Kidding? Newt Gingrich: Now, we dont get rid of [traditional Medicare] in Round 1 because we dont think thats politically smart. But we believe its going to wither on the vine because we think people are voluntarily going to leave it.... Source: Gingrich 1995

No, Were Not Kidding Ways & Means Chairman Thomas in 2003: Some of our friends on the other side of the aisle are saying that if [the MMA] becomes law, it will be the end of Medicare as we know it. Our answer to that is, we certainly hope so. Source: New York Times, June 26, 2003

A Brief History of Medicare Advantage Early 1980s: Private plans introduced to Medicare to save money to 1997: Plans paid at 95% of traditional fee-for-service rate. GAO: plans are overpaid at 95% 1997 to 2003: Congress changes funding formula. MedPAC: payment rate is 103% of traditional Medicare 2003 and on: Congress changes payments to MA plans MedPAC (2004-5): payments 107% of traditional fee-for-service MedPAC (2006-7): payments now 112% of traditional fee-for-service

Why Private MA Plans Cost So Much Profits to insurance companies Agents fees Marketing and advertising to lure customers to their plans

Whats the Alternative?

Improve Protections for Low-Income Seniors Improve outreach so more low-income seniors get Medicaid and Medicare Savings Programs (MSPs) Raise or eliminate assets tests that disqualify low-income seniors from MSPs Simplify applications and re-enrollment for MSPs

Percent of Low-Income Seniors, by Race Hispanic API African American White 19.9% Source: Kaiser Family Foundation % 12.6% 7.9%

Investing in Americas 9 Million Uninsured Children 3/5 are racial and ethnic minorities 2/3 have incomes < 200% of poverty ($34,340 for family of 3) 8 in 10: at least one parent works Source: Families USA

Hispanic API African American White Percent of Children Uninsured, by Race Source: Census % 12.5% 12.1% 7.2%

What Fiscal Commitment Do We Need? CBC, CHC, and CAPAC request: House and Senate Budget Resolutions: $50 billion new money But big obstacle: Pay-Go $60 billion new money over next 5 years for SCHIP

Meeting Pay-Go Requirements Finance, Energy & Commerce, and Ways & Means Committee leaders agree: Cant reach $50+ billion pay-go amount with only one source Need combination of sources, such as: Increased tobacco tax Improved tax collection measures (e.g. Rep. Emanuel proposal) Windfall MA overpayments

Key questions to ponder: Is it better to overpay MA insurers... OR Stop Medicares privatization? Subsidize poor seniors? Reduce premiums? Cover uninsured kids?